A Concession Deal is a Form of Public-Private Partnership (PPP) Where a Governmental Entity Enters into a Contractual Agreement with a Private Entity to Develop, Finance, Operate, and/or Maintain Public Infrastructure for a Specific Period of Time in Return for a Share of Ongoing Revenue Generated from User Fees
Once the contractual agreement is signed, a new private entity (the concessionaire) composed of a system operator, investment firm and management firm such as WCP, jointly invests in and operates the project.
In a concession agreement, as opposed to privatization, the governmental entity maintains ownership and legal responsibility for the infrastructure assets and the private concessionaire assumes the risks and fiscal responsibility for the project. While concession agreements are relatively new for the U.S. water sector, this form of PPP is used extensively for the transit sector in the U.S., as well as for water infrastructure around the world.
Concession deals are appropriate for a wide range of projects or services, such as transportation infrastructure (e.g., highways, airports, ports), social infrastructure (e.g., hospitals, schools), and utilities (e.g., electric, water supply, wastewater treatment). WCP is laser focused on developing concession deals for the water sector.
Local or regional municipalities often turn to concession deals to finance needed infrastructure, defease existing debt, and bring world-class operational expertise to the management of their public infrastructure assets without resorting to privatization. In addition, concession deals help municipalities minimize financial and operational risks of undertaking large-scale development projects and/or day-to-day operations. Without the operational and investment burdens of managing a water and wastewater system, government entities can focus on delivering other critical services such as education, police, fire and real estate development.
“Bayonne’s concession deal exemplifies how proactive investments in water technology and infrastructure can result in more predictable and moderate rate increases.”
Dan Sugarman
Managing Director, Water Capital Partners
What are the benefits of a concession deal?
Access to Private Capital
Concession deals provide ongoing and quick access to private sector funding, reducing the burden on public finances and enabling the development of large-scale infrastructure projects and/or improved public services. The upfront financing for WCP concession projects has ranged from $43 to $150 million, enabling the municipalities to wipe out existing debt and focus on better serving their communities.
Risk Transfer
PPP concessions transfer certain project risks to the private sector such as cost overruns, protecting taxpayers from unexpected financial liabilities related to construction delays, cost overruns, and operational risks.
Efficiency and Innovation
Private sector partners bring expertise, innovation, and best practices to the project, resulting in more efficient project delivery, cost savings, and improved service quality.
Revenue Sharing
In some cases, the public sector benefits from revenue generated by the project or service, which can contribute to public finances and offset the costs associated with the concession. For example, in our Bayonne concession agreement, the municipality keeps the additional revenue from water usage above the annual forecast.
Career Opportunities
Good concession agreements seek to minimize the disruption and maximize the career opportunities for former municipal employees, often resulting in more professional development, enhanced career opportunities, and a safer working environment. In WCP concession deals, former municipal workers have gone on to take management positions with the water system operator.